Eskom Declares South Africa Emergency on Power-Cut Risks

Eskom Holdings SOC Ltd., which generates 95 percent of South Africa´s electricity, declared an emergency after it lost generati ng units, instructing metal producers to cut use and raising the risk of power cuts in cities.

The rand weakened against the dollar and the platinum price rose after the announcement, which followed warnings by Eskom last week and yesterday of tight supply. South Africa is the world´s biggest producer of platinum.

"Eskom is now following the protocol in terms of its emergency procedures in order to secure the power system," the Johannesburg-based utility said in an e-mailed statement yesterday. "We have alerted our key industrial customers and have required them to reduce their load by a minimum of 10 percent."

BHP Billiton Ltd., whose aluminum smelters are the country´s biggest power users, and Anglo American Plc said they would assist Eskom by cutting usage. Platinum and gold producers in South Africa use electricity to move workers in the world's deepest mine shafts.

The utility is spending 500 billion rand ($50 billion) to replace aging equipment and add plants to avoid a repeat of 2008 blackouts that halted mines, including those owned by companies such as Anglo and BHP, for five days and paralyzed factories in the continent´s biggest economy.

Avoiding BlackoutsEskom will make "every effort" to avoid rolling blackouts, known locally as load-shedding, it said. The company, which produces about 85 percent of its power from coal, said about 27 percent of its 41,900-megawatt generating capacity was out for maintenance earlier this week. The targeted surplus is at least 2,000 megawatts while it was estimated at just 400 megawatts yesterday, spokesman Andrew Etzinger said by phone.

The Chamber of Mines, which represents producers such as AngloGold Ashanti Ltd. (ANG), said its members have been working with Eskom on the emergency protocol for the past three months and will do what they can to protect the network.

"It isn´t the responsibility of the large industrial customers alone to carry the full burden of the electricity-supply emergency," the Johannesburg-based chamber said in an e-mailed statement. "This is a `national emergency´ and all stakeholders have a responsibility to curtail electricity demand by at least 10 percent."

Eskom ProvisionsThe utility is allowed to interrupt power to BHP´s smelters in Richards Bay on South Africa´s northeastern coast and another in neighboring Mozambique for as long as two hours a week without warning or compensation.

"Eskom is currently making use of this provision," BHP spokeswoman Lulu Letlape said in an e-mailed response to questions.

While Anglo American hasn´t officially been asked to cut usage, it will make required adjustments when necessary, spokesman Pranill Ramchander said in an e-mail.

The rand erased an earlier advance of as much as 0.6 percent against the dollar after the announcement, losing 0.6 percent to 10.2032 by 8:25 p.m. in Johannesburg yesterday and extending its decline this year to 17 percent, the most among 16 major currencies tracked by Bloomberg. The spot price of platinum rose as much as 1.2 percent to $1,426.90 an ounce as of 6:25 p.m. in London.

Yields on Eskom´s $1.75 billion of bonds due in January 2021 rose 7 basis points, or 0.07 percentage point, to 5.96 percent.

Market Move"Last time there was load-shedding the rand sold off 20 percent and there were massive bond outflows," Peter Attard Montalto, an economist at Nomura Plc in London, said in a text message. "The system has more capacity and more demand management protocols but still it shows how tight and out of date much of the stock of generating capacity is."

While the utility is conducting "a great deal of maintenance" on coal-fired plants, it also has shut one of two 920-megawatt units at its Koeberg plant, its sole nuclear operation, in Cape Town for repairs and refueling. The facility will return to service in the last week of December, Eskom said Nov. 10.

Most industrial users have maintained power usage at 90 percent or below since 2008, said Shaun Nel, director at the Energy Intensive User Group of Southern Africa, whose 32 members include local units of BHP and ArcelorMittal.

"We have had significant opportunities to look at really innovative ways to address the power situation," he said by phone. "We've wasted a number of years and it's come back to haunt us."